Consumer Duty: FCA consults on scope and proportionality

On 29 June 2026, the Financial Conduct Authority (FCA) published its consultation paper CP26/23 (CP), proposing a package of targeted amendments to the FCA Handbook and the non-Handbook Guidance to the Consumer Duty (FG22/5) (the Duty) to clarify the scope of the Duty and allow the Duty to be applied in a more proportionate way, particularly for wholesale firms.

The CP is seeking to fulfil two of the commitments made by the FCA in September 2025 in response to the Mansion House 2025 speech, requesting the FCA to assess the impact of the Duty and whether it unduly affects wholesale activity. This remains a focus for the government, with the FCA proposals being referenced in the government’s recent update on Delivering the Financial Services Growth and Competitiveness Strategy as part of the drive to deliver a competitive regulatory environment and ensure risk is managed in ways that support innovation and growth.

While the CP has clearly been drafted with the wholesale markets in mind, it also includes proposals that could have an impact on other stakeholders, such as distributors.

Executive summary

Below is a high-level summary of the key proposals in the CP:

• Narrowing the territorial scope of the Duty – the proposals would limit the scope of the Duty to retail market business carried on in relation to retail customers who are “usually resident” in the UK, unless an exception applies.
• Refining the scope of the Duty – the CP proposes to restructure the scope of the Duty by revisiting the core concepts of the Duty:
  • The definition of “retail market business” is updated to refer to specific activities that cover the lifecycle of a retail product or service and other activities that have a clear connection with retail products or services. There are new exclusions covering activities that would not involve retail market business or direct engagement with retail customers.
  • “Distribution chain” would be defined in the FCA Handbook, and the FCA intends to clarify that the application of the Duty would depend on the actual role of a firm, such that a firm would not be required to comply with a rule if that is not relevant to that firm’s role.
  • The FCA would clarify that the Duty should not apply if a firm’s role is “so limited or remote that it cannot determine or materially influence outcomes for retail customers”. The FCA would like to move away from the concept of “material influence” and firms to focus more on their role and the extent of their involvement in providing retail products and services.
  • The FCA proposes to simplify the definition of “product” to remove ambiguities as to how certain limbs of the current definition should be interpreted.
• Firms working together to manufacture products – the FCA wants to remove references to “co-manufacturing” and introduce the concepts of principal and secondary manufacturers. The application of the Duty would be focused on principal manufacturers, while secondary manufacturers would be subject to more limited obligations under the Duty.
• Proportionate application of the Duty – the FCA proposes to clarify the concept of proportionality and other current rules to help firms apply the Duty proportionately. These proposals cover a range of matters, including: the ability to rely on information provided by other firms, diligence on firms in the distribution chain, collection of information for the Duty, obligations with respect to vulnerable customers, simplified governance requirements and notification to the FCA on the conduct of other firms in the distribution chain.
• Clarifying the interaction with other product governance and disclosure requirements – no change is intended for Chapter 3 of the Product Intervention and Product Governance Sourcebook (PROD), but the FCA would clarify that the processes for complying with PROD 3 could inform firms’ assessments for the Duty. Separately, compliance with the disclosure requirements under the Consumer Composite Investments (CCI) regime should help satisfy but may not completely discharge the Duty requirements, which are broader than the CCI requirements.

Further details of the key proposals in the CP are outlined below.

1. Narrowing the territorial scope of the Duty

One of the most significant proposals in the CP of general application is the limitation of the territorial scope of the Duty.

Under the current framework, the Duty applies wherever the applicable regulatory perimeter extends.  For example, where sectoral conduct of business rules (e.g., COBS in respect of investment activities) apply to cross-border retail business, the Duty will also be applicable. This could lead to overlapping UK and overseas requirements concerning similar issues.

The CP proposes to limit the scope of the Duty to retail market business carried on in relation to retail customers who are “usually resident” in the UK, based on the customer’s residential address or, in the case of an entity, its establishment address, assuming there is no reason for the firm to reasonably conclude otherwise.

For products or services that are intended to be distributed to non-UK customers only, manufacturers must reflect that in their distribution strategies and will, in principle, bring themselves outside the scope of the Duty in respect of those products or services. However, they may still have to comply with other applicable laws and regulation in the UK. For products that may be distributed to both UK and overseas customers, while the Duty would technically apply only in respect of customers that are usually resident in the UK, firms might decide to comply with the requirements under the Duty regardless of the residence of their customers out of, for example, practical reasons.

Specific carve-outs are proposed for certain customers (in particular, crown servants stationed overseas) and products when the relevant business has a clear UK connection (e.g., in relation to the UK tax regime), including pre-paid UK funeral plans and UK pensions. In those circumstances, the Duty applies irrespective of whether the retail customer is usually resident in the UK.  

2. Refining the scope of the Duty

The FCA is also proposing to restructure how the scope of the Duty is defined. While the new proposals retain the core concepts that underpin the scope of the Duty (e.g., “retail market business”, “distribution chain” and “material influence”), these concepts would either be newly defined, redefined or clarified and therefore may be interpreted differently. The relevant rules on the scope of the Duty would be brought together in a new, separate chapter of the Principles for Businesses Sourcebook (PRIN), PRIN 3A. We have considered below each of the core concepts as well as the definition of “product” (which is of relevance to the interpretation of the other concepts).

2.1. Updating the concept of retail market business

“Retail market business” is currently defined very broadly, with the concept of a “distribution chain” embedded in the definition.  The CP proposes to update this definition. Under the new definition, a firm would carry on “retail market business” where it undertakes any of the listed activities in relation to a product or service that is (or is intended to be) offered, provided or sold to retail customers. Those activities cover the entire lifecycle of a product or service, from manufacturing of the product or service to post-sale services.

A further category of activities would also be caught even where they do not fall clearly within those listed activities because they have a clear connection to the relevant retail product or service. These activities include approval of financial promotions relating to retail market business and certain consumer credit activities.

The proposed definition of “retail market business” would no longer refer to “distribution chain”, which simplifies the definition to a certain extent. However, the two concepts would still be closely linked because, as discussed below, the distribution chain consists of firms that carry on one or more retail market business activities. Retail market business remains a broad concept, capturing activities across the full lifecycle of a product or service. As a result, it seems unlikely that the proposed updated definition would on its own be particularly helpful for firms when determining whether their activities fall inside or outside the scope of the Duty.

However, there is some helpful guidance proposed in the CP that specifically addresses the application of the Duty to wholesale markets in the non-Handbook Guidance. The FCA states clearly that the Duty does not apply to firms carrying on purely wholesale business with no connection to retail products and services. However, that was of course never in doubt.

The Duty would apply to a wholesale firm if it carries on retail market business as part of the distribution chain, e.g., manufacturing a product or service. As an example, the FCA is of the view that a fund manager of a fund that is intended only for institutional investors will not be subject to the Duty, even where a third party includes that fund as part of a retail fund of funds or a model portfolio service, provided that there is no involvement from the fund manager.

2.2. Additional exclusions for retail market business

The FCA is proposing a significant expansion of the exclusions from the definition of “retail market business”. These exclusions cover activities that would not involve retail market business or direct engagement with retail customers, including but not limited to:

(a) Payment services: merchant acquiring where neither the payer nor the payee is a retail customer; where there is no direct interaction with or provision of service directly to a retail customer, providing sponsored or indirect access to UK payment systems and providing an account for safeguarding of funds for payment services or e-money activity;

(b) Third-party custodians and depositaries: safeguarding and administering investments and cryptoassets and activities of a depositary where there is no direct engagement with retail customers (with limited exceptions for depositaries where they take on more responsibilities or a more active role, e.g., in fund suspension or manager appointment scenarios);

(c) Provision of products or services that act as components in a third-party’s retail product or service: providing derivatives in certain scenarios (e.g., as a hedge provider where the derivative is provided on general commercial terms and without any customisation or tailoring to the retail product or service) and providing specified investments where they are independently incorporated into retail products; and

(d) Other activities: market making; provision of ESG ratings; defined benefit pension scheme trustee support; and activities of the Society of Lloyd’s (although managing agents carrying on business for retail customers could still be caught by the Duty).

The proposed exclusions would represent a meaningful narrowing of the Duty’s scope and greater certainty for a number of market participants, in particular wholesale firms operating as intermediaries or infrastructure providers without direct retail customer contact.

2.3. Defining the distribution chain

Under the current regime, “distribution chain” is not defined in the FCA Handbook, even though it forms one of the cornerstones of the scope of the Duty. The FCA currently provides in FG22/5 that all firms involved in the manufacture, provision, sale and ongoing administration and management of a product or service to the end retail customer are part of a distribution chain.

The CP proposes to retain the concept of “distribution chain” but to give it a definition in the FCA Handbook: broadly, it would comprise the chain or network of firms involved in supplying and delivering a product to retail customers at the end of the chain, and those firms would be carrying on one or more “retail market business” activities in relation to the product or service. 

Similar to the current regime, the starting point is that the Duty applies to firms across the distribution chain. However, the application of specific rules under the Duty and the extent of a firm’s obligation would depend on the actual role of the firm’s involvement in the chain. It would be clarified in the FCA Handbook that a firm would not be required to comply with an outcome rule where it is clear in the circumstances that the obligation set out by that outcome rule is not relevant to the firm’s role and activities in relation to the relevant product or service.

For example, if a firm is not involved in preparing or issuing communications with the retail customers, then it would not be required to comply with obligations relating to the consumer understanding outcome.

Firms may be able to take some comfort from these clarifications in descoping their activities from certain Consumer Duty requirements if they are not relevant to their specific role and activities.

2.4. Clarifying the concept of material influence

Currently, the Duty applies to activities of a firm in a distribution chain to the extent that it is responsible for determining or materially influencing retail customer outcomes. The obligations under the Duty are to be interpreted reasonably in a way that reflects the firm’s role in the chain and level of influence. “Material influence” is not defined in the FCA Handbook, but FG22/5 provides that a firm will be able to have material influence if, for example, it can influence material aspects of products or services.

Under the CP proposals, the FCA intends to clarify that where a firm forms part of a distribution chain, the Duty does not apply if the firm can demonstrate that its role in relation to the relevant product or service is "so limited or remote that it cannot determine or materially influence outcomes for retail customers". This assessment should be made by reference to the nature and extent of the firm’s role in the chain and the activities it carries on in relation to the product.

The FCA’s intention is that clarifications around the proportionate and reasonable interpretation of Duty obligations would move away from the material influence concept. Instead, the regulator wants firms to focus more on their role and extent of involvement with a particular retail product or service, noting that this would provide a clearer framework for firms. 

Notwithstanding these clarifications, whether the firm’s role is sufficiently limited or remote, or its influence sufficiently material to put the firm in scope of the Duty, remains inherently judgment-based. The FCA has not sought to eliminate the need for judgment, and firms will need to assess their position by reference to all relevant circumstances.

2.5. Simplifying the definition of product

The FCA also proposes to simplify the definition of “product” by removing references to products provided directly to retail customers and between firms to enable the provision to retail customers, on the basis that this matter is addressed elsewhere in other parts of the rules, particularly in relation to the definitions of retail market business and distribution chain.

“Product” would therefore be defined only with respect to specified investments and the carrying on of regulated (or ancillary) activities, or the provision of payment services or issuance of e-money (or activities connected thereto). This is a welcome simplification as there are ambiguities as to how the limbs that would be removed should be interpreted.

3. Firms working together to manufacture products 

Some firms have found it difficult to apply the rules of the Duty where there are multiple manufacturers. As a result, the FCA sought to clarify its expectations by way of a statement in December 2025. The FCA is now proposing to make further changes to the relevant rules and guidance.

In particular, the FCA wants to remove references to “co-manufacturing” in light of concerns raised about the ambiguous nature of this concept because it does not match industry use in some parts of the market. The proposed rules would focus on what happens when more than one firm contributes to the manufacture of a product or service. Manufacturers who work together would instead be either a principal or secondary manufacturer. A principal manufacturer is a firm that has substantive control over the design or operation of the product or service; other firms are secondary manufacturers.

A list of non-exhaustive indicators of substantive control is proposed, including: (i) carrying on activities relating to the core aspects of a product’s design or operation; (ii) being responsible for initiating or setting into motion the assembly of the contribution of other manufacturers for purposes of creating the product; (iii) having a coordinating role over the activities of other manufacturers; (iv) having the power, right or ability to make decisions about the core aspects of the product’s design, operation, distribution strategy or value proposition for end retail customers; and (v) holding out as the, or a, main provider of the product.

The intention is to focus the application of the detailed Duty requirements on firms that play a central role in the design or operation of a product or service. Given the more limited role of secondary manufacturers, they would not be subject to all the rules and obligations of the Duty. In respect of the products and services outcome and price and value outcome, they would be required only to take reasonable care to (i) consider the substance and impact of their contribution on the manufacturers of the product or service and on its price and value; and (ii) ensure that their contribution does not create a material risk that the product fails to meet retail customers' needs and objectives, causes foreseeable harm, or fails to deliver fair value.

The FCA also notes that it would generally expect less from secondary manufacturers than from principal manufacturers under the cross-cutting rules. Further, the FCA clarifies that while manufacturers working together are required to document their respective roles and responsibilities in an agreement (which does not have to be a standalone document), this does not mean that responsibilities, actions and their implications are necessarily allocated evenly between the parties. Secondary manufacturers could therefore be more comfortable with applying the Duty in a proportionate manner.

The FCA also clarifies the application of the Duty in respect of outsourcing arrangements. Consistent with other parts of the FCA Handbook, the firm outsourcing manufacturing activities is expected to remain responsible and liable for the outcomes received by their retail customers. Where the outsourced service provider is also an authorised firm conducting activities subject to the Duty, both firms are expected to assess their respective responsibilities under the Duty, and each firm is responsible for complying with the Duty in respect of its own activities. Where a firm outsources activities in relation to the manufacture of a product, the FCA would generally expect that firm to retain substantive control over the design or operation of the relevant product and therefore remain a principal manufacturer for the purposes of the Duty.

4. A proportionate application of the Duty

Beyond the question of scope, the CP also addresses a distinct but related concern: how to ensure that the Duty, where it applies, operates proportionately. The FCA has acknowledged that the implementation of the Duty has given rise to a number of operational difficulties. To address proportionality concerns, the CP proposes a package of clarifications and new provisions in the FCA Handbook and non-Handbook Guidance.

4.1. Clarifying the concept of proportionality

Currently, proportionality is a concept that exists only in non-Handbook Guidance rather than in the specific Duty rules in the FCA Handbook. The FCA proposes to entrench and clarify this concept in the FCA Handbook. The obligations of the Duty should be interpreted in a way that is commensurate with the firm’s ability to determine or influence retail customer outcomes. Based on the proposed provisions in the non-Handbook Guidance, the reference to “the firm’s ability” does not simply mean the contractual rights that a firm may exercise but the actual role of that firm in practice.

4.2. Other proposals for the proportionate application of the Duty 

There are other proposals in the CP which help clarify and promote the proportionate application of the Duty, including:

(a) Firm’s responsibilities in the distribution chain: the FCA confirms that generally firms are responsible only for compliance in relation to their own role and activities and are not responsible for overseeing compliance of other firms in the distribution chain.

(b) Reliance on information provided by other firms: firms may reasonably rely on information and representations from other firms where their own compliance depends on them. Firms should still act in good faith and not rely on information where it would be unreasonable to do so.

(c) Due diligence: firms may adopt a risk-based and proportionate approach when carrying out due diligence on other firms to decide whether they would like to work with those firms in a distribution chain. It may be appropriate in certain circumstances for a firm to make a general rather than an in-depth assessment of another firm’s approach to the Duty.

(d) Collection of information: firms are not expected to share or collect information that is not reasonably required to meet the recipient firms’ regulatory obligations. The collection of information should be proportionate, and the information should enable them to understand if their activities are supporting good retail customer outcomes. Firms are not expected to collect data that does not meaningfully help them to understand their impact on retail customer outcomes.

(e) Customer vulnerability: firms that are further removed from end retail customers, e.g. manufacturers, should consider risks of their own activities and take steps to mitigate harm to customers, including those in vulnerable circumstances, where appropriate. Meanwhile, firms that are closer to retail customers, e.g. distributors, have more direct responsibilities for identifying and responding to customer needs.

(f) Simplified governance requirements: the CP proposes simplifications and clarifications to the current governance requirements, including but not limited to:

• The removal of the requirement to produce a standalone annual Consumer Duty board report; firms may instead incorporate considerations of the Duty into their general board reporting structures.
• Clarification that board reporting should be commensurate with the firm’s role and activities in the distribution chain.
• Clarification that firms are not expected to report on Consumer Duty obligations that are irrelevant to their role.

(g) Notifying the FCA of material concerns: the CP proposes that a firm should notify the FCA only in respect of material concerns about the conduct of another firm in the distribution chain. Where reasonable, the firm that has identified a concern may first raise it with the other firm and seek clarification or comfort before escalating to the FCA.

5. Interaction with other product governance and disclosure requirements for retail investment products

5.1. Clarifying the interaction with PROD 3

Currently, where PROD 3 applies (in relation to financial instruments and structured deposits), firms should comply with those rules instead of the rules on the Duty’s products and services outcome. However, the FCA does not consider that PROD 3 fully addresses the price and value outcome under the Duty. Firms have found the interaction between PROD and the Duty to be quite complex.

While the FCA is not proposing to make any substantive change to the current framework, it would clarify the interaction between PROD and the Duty in non-Handbook Guidance. For example, while the price and value outcome requires a broader and more holistic assessment of fair value than the requirements of PROD 3, firms may rely on the processes required under PROD 3 to inform their assessment under the price and value outcome. Where firms already consider whether a product’s costs are reasonable relative to the benefits to its target market under PROD, firms are not expected to establish separate processes for the Duty.

While the FCA has received feedback on potentially merging PROD 3 with the Duty, no rule changes are proposed on this at this stage. The FCA’s view is that PROD 3 still has an important role on scope, cross-border application and legal certainty in the application of product governance requirements. There could be unintended consequences if PROD 3 were to be removed or disapplied without careful consideration.

5.2. Clarifying the interaction with the CCI regime

While the CCI regime has been designed in light of the Duty, the FCA proposes to clarify that where a firm’s role is limited to the manufacture of a retail product or service and the firm complies with applicable disclosure requirements (such as those under the CCI regime), this would generally be the primary means by which it supports the consumer understanding outcome. Relatedly, firms should not assume that they are necessarily required to take additional or duplicative steps as a result of being subject to both the Duty and the CCI regime. For example, the product summary prepared by the manufacturer under the CCI regime would be the primary way for the manufacturer to support consumer understanding, unless additional marketing materials are produced.

Nonetheless, while compliance with the CCI rules could help firms meet certain aspects of the consumer understanding outcome, the FCA notes that the Duty requirements are broader than the disclosure requirements under the CCI regime. For example, the CCI regime does not set out the steps required to support consumer understanding, e.g., testing of communications.

6. Timeline

Responses to the CP are due by 18 September 2026. The FCA expects to publish a policy statement and make final rules in Q1 2027.

7. What does this mean for firms?

The CP represents a step forward in reducing compliance burden, particularly for internationally active firms and those with limited or indirect retail customer exposure. The most significant relief is likely to be felt in connection with the limitation of the territorial scope and the expanded exclusions from “retail market business”. The impact of certain proposals on the proportionate application of the Duty is also likely to be helpful for some firms.

However, the proposals do not offer a clean break from the interpretive challenges that have characterised the Duty since its introduction. While the FCA seeks to clarify the key concepts, there is an inherent element of judgment and therefore uncertainty involved when firms are applying them to determine the scope and the extent of application of the Duty, and the inclusion of more worked examples can only help firms assess their obligations under the Duty to a certain extent. This is a conundrum that affects outcome-based regulation, including the Duty, and it remains to be seen how successful this CP will be in resolving it.

Nevertheless, taken together, it is clear that the FCA’s intention is to provide a more consistent and proportionate framework to support firms in determining (and limiting) how and when the Duty applies, which may be particularly helpful where the firm’s role in relation to the retail product or service is more limited or indirect.